2017 Integrated Report
2017 Integrated Report Our sustainable value creation Consolidated Non-Financial Statement pursuant to Legislative Decree 254/2016
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Report structure Index
UniCredit published a Sustainability Report each year from 2000 to 2013. In line with the most recent international developments Chief Executive Officer’s Message 4 in corporate reporting, since 2014 the Group has continued to report on sustainability in an Integrated Report (the “Report”) under the GRI Guidelines and the IIRC Framework. The aim is to describe the Group’s financial and sustainability performance, business model, corporate governance, risk management, compliance, competitive environment, strategy and capitals. Highlights 6 UniCredit has prepared this document in compliance with the requirements of Articles 3 and 4 of Legislative Decree 254/2016, Our Purpose & Identity 8 which implements European Directive 2014/95/EU in Italy. In addition, the Report is part of UniCredit’s principled effort Our Value Creation over time 10 to further develop its compliance with the European Commission’s Guidelines on non-financial reporting and advance Governance 12 understanding of all aspects of its business. Risk Management and Compliance 14 The Report has been approved by the Board of Directors of UniCredit SpA on March 5th, 2018 and has been produced by the Group Sustainability & Foundations function, in collaboration with the Strategy, Business Development and M&A function. Our Business Environment 20 In 2017, in line with the requirements of Legislative Decree 254/2016, a specific policy was adopted to define the roles, Business Model in action 22 responsibilities, activities and controls and to coordinate the flow of information between UniCredit’s parent company, regions, Stakeholder Engagement 24 divisions and legal entities in relation to the process of preparing the Consolidated Non-Financial Statement. The Report should be considered in its entirety, including its Supplement, which is available in the Sustainability section of our Our Strategy 26 website (www.unicreditgroup.eu) and contains a number of essential indicators and underlying quantitative data. Strategic plan 28 The guidelines adopted for the preparation of the sustainability information included in the 2017 Integrated Report, including Integration of Strategic Pillars and Capitals 28 the Supplement, are the “G4 Sustainability Reporting Guidelines” and the “Financial Services Sector Disclosures,” both issued Strengthen and optimize capital 29 in May 2013 by the Global Reporting Initiative (GRI). The principles contained in the International
To determine the reporting boundaries, in 2017, a risk-based analysis of the Group’s legal entities consolidated on a line by line GRI and UN Global Compact Indexes 64 basis was carried out by UniCredit SpA. The purpose was to identify the relevant companies and ensure the Report would provide a proper understanding of the Group’s activities, development, performance and relevant impacts. This reporting perimeter Report of the External Auditors 73 represents 97% of Group’s FTEs. The reporting boundaries include 14 countries where the Group has significant operations: Italy, Germany and Austria in Western Europe, and Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Supplement Romania, Russia, Serbia, Slovakia and Slovenia in Central and Eastern Europe. This year, data and information relating to Bank Determination and distribution of Value Added S. 2 Pekao, Pioneer Global Asset Management and their subsidiaries are not included in the reporting boundaries, following the sale of Main partnerships and affiliations S. 4 Bank Pekao to Powszechny Zakład Ubezpieczeń SA in June 2017 and of Pioneer to Amundi in July 2017. For figures related to the exposure to renewable energy sector, Yapi Kredi (accounted for by the equity method in the Consolidated Report and Accounts) Selection of 2017 awards S. 8 portfolio has been included pro quota. Community contribution and initiatives in support of Communities included in the “Social Governance S. 10 and relationship Capital” chapter include data and information related to UniCredit Foundation and UniCredit & Universities Risk Management and Compliance S. 16 Knight of Labor Ugo Foscolo Foundation (the “UniCredit & Universities Foscolo Foundation”), not included in the perimeter of the Stakeholder Engagement S. 32 Consolidated Report and Accounts. The perimeter considered in the paragraph of the Supplement “Compliance - Whistleblowing” Human Capital S. 36 includes the legal entities currently monitored and considered relevant by Group Compliance. For figures related to staffing and Social and relationship Capital S. 50 calculations of the Value Added, the scope of the Report corresponds to the 2017 Consolidated Reports and Accounts, unless Natural Capital S. 54 otherwise indicated. Any conditions that may limit the scope of the data are clearly disclosed throughout the Report.
To ensure reliability, the Report includes directly measurable quantities and limits the use of estimates as much as possible. Potential estimates are based on the best available information or spot checks. Restatements of previously published figures that have been provided for comparison are clearly indicated as such.
The Report was subject of a limited assurance engagement (according to the criteria set out by the ISAE 3000 Revised principle) by Deloitte & Touche S.p.A., which, at the end of the work performed, released a specific report with regard to the compliance of the information contained in the Consolidated Non-financial Statement prepared by UniCredit as required by the Legislative Decree 254/2016.
2 UniCredit • 2017 Integrated Report UniCredit • 2017 Integrated Report 3 Our investments in digital aim to improve the network with new service models for retail and customer experience as we continue to optimise SME customers as well as a strong multichannel Chief Executive our processes and our cost base. New commercial strategy. Cost reductions are progressing according dynamics are driving how we train and develop to plan. In two other core divisions, CEE and CIB, our people. we have further strengthened our leadership Officer's positions while keeping a strong focus on risk. Our management is clear on this vision and their message actions are underpinned by a strict long-term Finally, In terms of adopting a lean but incentives structure based on the plan’s key steering centre, decisions taken at our latest performing indicators. All our people are focused EGM concerning, for example, a simplified share on the ongoing execution of Transform 2019. structure, position us as best in class in terms It is their energy, commitment and hard work of European corporate governance. which allows UniCredit to deliver tangible results. Finally, on behalf of the Board of Directors and As presented to investors at the 2017 Capital the whole Group, I would like to extend a special Markets Day in December, our performance thanks to Giuseppe Vita, whose successful tenure is fully on track and we have confirmed all as the Chairman of UniCredit is coming to a the Transform 2019 key targets, with a better close. Giuseppe's significant contributions over risk profile and an improved dividend payout. the past six years have been very precious to We are transforming our development. His vision and support have through decisive We have strengthened our capital position, enabled UniCredit to grow into one of the few resulting in a lower SREP Pillar 2 Requirement truly pan European commercial banks. actions. Everything and an S&P upgrade to a BBB rating with a stable outlook. We have confirmed our 2019 CET1 ratio Sincerely, we do is designed target whilst anticipating additional regulatory to make UniCredit headwinds during the plan period. Post 2019, Jean Pierre Mustier the CET1 ratio will remain above 12.5 per cent, Chief Executive Officer a true pan European thanks to an organic capital generation that will UniCredit S.p.A. Winner. fully absorb the expected regulatory impacts. In terms of asset quality, we signed binding Jean Pierre Mustier agreements to reduce our stake in FINO to below Chief Executive Officer 20 per cent. A more disciplined risk management strategy and underwriting processes are driving significant improvements in all our asset quality metrics. Finally, as announced, we are improving on our original Group Gross NPEs' target, cutting Dear Stakeholders, a further €4.0bn by the end of 2019. The full rundown of the Non Core portfolio, which will I would like to thank you for your ongoing Our strategy is to be One Bank, One UniCredit: occur by end 2025, is entirely self-funded. support during our transformation. At UniCredit, a simple, successful, pan European commercial we are taking decisive actions to become more bank, with a fully plugged in CIB, delivering In terms of transforming our operating model, competitive and build a strong, sustainable a unique Western, Central and Eastern European we have confirmed our overall revenues and cost Bank, poised for future growth. We have network to our extensive client franchise. targets. Our FTE and branch reductions are ahead executed on all our commitments in 2017, of schedule and our digital and IT transformation including a successful €13bn capital increase This strategy is long-term. What we are doing is fully on track. and the disposals of Pioneer Investments today to implement Transform 2019 - our and Bank Pekao stakes. We concluded FINO strategic plan - is laying the groundwork for We continue to maximise commercial bank Phase 1, with the sale of a €17.7bn portfolio. the future. It is changing the way we work to value, with the ongoing transformation resulting Everything we do is designed to make UniCredit anticipate our clients’ medium-term evolution, in higher productivity. Our activities in Western a true pan European Winner. including their use of multiple channels. Europe continue to benefit from the revamped
10 2017 Consolidated4 UniCredit Reports • 2017 and AccountsIntegrated · UniCredit Report UniCreditUniCredit · 2017• 2017 Consolidated Integrated Reports Report and Accounts5 11 UniCredit European Russia Highlights Banking Network Hungary
Slovakia UniCredit is a simple successful Pan European Commercial Bank, with a fully plugged in CIB, delivering a unique Western, Central and Eastern European network to our extensive client franchise: 25 million clients. UniCredit offers local expertise as well as an international one reaching and supporting Germany its clients globally, providing them with unparalleled access to leading banks in its 14 core markets as well as in other 18 countries worldwide. UniCredit European banking network Czech Republic includes Italy, Germany, Austria, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Romania, Russia, Serbia, Slovakia, Slovenia and Turkey. Austria
Slovenia Financial Highlights1
Operating income Total assets Italy € 19,619 m € 836,790 m Net profit (loss) € 5,473 m Common Equity Tier 1 ratio* Shareholders' equity 13.60% Croatia Serbia € 59,331 m Romania Bosnia and Herzegovina Bulgaria Turkey Revenues1 (%) Market Shares2 (%)
Commercial Banking Italy Italy Austria Italy 3 8 10 14.0 11.1 CEE Division Germany 1 x Bosnia and Herzegovina Romania 13 CIB CEE 0.5x by 20 23.0 9.5 36 Commercial Banking Germany by Austria Business 46 Bulgaria Russia Lines Commercial Banking Austria Regions 19.7 1.5 20 Asset Gathering Croatia* Serbia 24 27.3 11.3 20 Czech Republic Slovakia 8.5 8.5 Germany Slovenia 2.5 7.5 Hungary Turkey 9.0 9.1
1. Data as at December 31, 2017. In accordance with IFRS5, the profit/loss of Bank Pekao S.A., Pioneer Global Asset Management S.p.A. and their subgroups’ companies till the date of the deconsolidation, were recognized in Income Statement under item “Profit (loss) after tax from discontinued operation”. 2. Market Shares in terms of Total Loans as at November 2017. Disposals were finalized during 2017. * data as at October 2017. * Fully loaded CET1 ratio. Source Company data, National Central Banks.
12 2017 Consolidated6 UniCredit Reports • 2017 and AccountsIntegrated · UniCredit Report UniCreditUniCredit · •2017 2017 Consolidated Integrated Reports Report and Accounts7 13
Value Creation over time Our Purpose Main 2017 Results Unique culture and Identity Governance Governance model Board Composition
Risk Management and Compliance Risk Management Compliance culture Our Purpose and Identity Our Value Creation → Our Value Creation over time over time
Our vision is to be One Bank, One UniCredit. We are a simple, successful pan-European We are realizing our vision by making UniCredit an At its heart, our business is to help customers and MATERIAL TOPICS commercial bank, with a fully plugged in Corporate & Investment Banking, delivering a effective, efficient and profitable Group – one that stakeholders manage social and environmental unique Western, Central and Eastern European network to our extensive client franchise. supports the advancement of local communities, the challenges and invest for the future. Their success competitiveness of enterprises and the well-being of guarantees the sustainability of our business. individuals.
Our highest priority is to serve our customers the very Building a unique culture to support C PI best we can. To achieve this, we rely on the quality and our value creation commitment of our people, as well as on our ability to Social and collaborate effectively and generate synergies as One For our Group, establishing a shared culture of inancial Human relationship atural Intellectual Bank, One UniCredit. We will also take care to accept One Bank, One UniCredit represents an important only the right kinds of risk and to maintain discipline in milestone along the road to sustainability. The how we execute our strategy. integrity and consistency of our values and behavior form the foundation of this endeavor. The underlying set of resources and relationships that OV C we depend on to create value are known as capitals. Our Five Fundamentals2 are the principles that inform input Groupwide, we work to responsibly manage our financial our actions, today and into the future. capital, human capital, social and relationship capital, IV I natural capital and intellectual capital. This effort is Ever since they were first endorsed by our Board O underpinned by the success of our clients and the trust of Directors, our System of Values and our Code of Customers irst and support we receive from our stakeholders. Conduct have comprised the core of our Group’s eople evelopment organizational culture. M Cooperation Synergies MA C IVI I Risk anagement Our business model driving synergies and nities xecution iscipline streamlining our operations, in combination with Our Code of Conduct outlines our approach to d opportu Commer ial an in and isks an our efficient, informed and client-focused Corporate managing compliance risks and underscores the Corporate Investment an in & Investment Banking division, facilitates the legal and ethical standards necessary to run our conversion of our capitals into outputs and outcomes business successfully. At the same time, the code
that help us achieve our strategic goals and create requires us always to protect our clients’ interests,